September 18, 2012

When persons negotiate with other parties, they frequently think that the other side possesses greater bargaining power than they possess. This is due to the fact they become intimately familiar with the circumstances affecting their own side, without taking the time to assess the factors influencing their opponents.

A friend of mine was once involved in a difficult inter-corporate negotiation. He explained the difficult issues to be resolved, and told me that his firm had no bargaining power. I asked him what would happen to his corporation if no agreement could be achieved, and he said it would be bankrupt. When I asked if the firm could reorganize, he thought about it and answered in the affirmative. I then asked him what would happen to the other corporation if they could not achieve an agreement with his company. He said that he had no idea. When I asked him to think about this issue, he responded that it would be bankrupt. I then asked if it could reorganize. He responded in the negative, since his corporation was one of that firm’s major customers. If their current relationship were to end, the other company would be out of business. Once he realized that the other corporation needed a deal more than his firm, he was able to achieve beneficial terms for his own company.

Once negotiators carefully consider their own side’s circumstances and non-settlement alternatives, they must look across the bargaining table and ask themselves the degree to which the other side needs the deal. What happens to that side if no accord is achieved? They will frequently discover that the other party needs the accord as much – or even more – than they do. In such cases, they should not concede the bargaining advantage to that party. On the other hand, when their side requires a deal more than the other party, the other side may possess greater bargaining power. Nonetheless, since there is a good chance the other party has not really considered this possibility, they may still be able to convince that side that it needs a deal more than they do!